Conoco fights MF Global trustee over $93.5 million

CHICAGO Wed Jun 27, 2012 11:05pm BST

The sign marking the MF Global Holdings Ltd. offices at 52nd Street in midtown Manhattan is seen in New York November 2, 2011. REUTERS/Shannon Stapleton

The sign marking the MF Global Holdings Ltd. offices at 52nd Street in midtown Manhattan is seen in New York November 2, 2011.

Credit: Reuters/Shannon Stapleton

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CHICAGO (Reuters) - ConocoPhillips (COP.N) and MF Global Inc's bankruptcy trustee are squaring off in a $93.5 million (60.05 million pounds) dispute that illustrates how hard it is to divvy up the assets of the failed brokerage, a Reuters analysis of a court filing shows.

On Friday last week, the oil company -- a longstanding MF Global MFGLQ.PK customer -- filed an objection to the trustee's treatment of its claim, calling his approach "flawed" and saying Conoco had not received the bulk of the distributions from its MF Global accounts to which it was entitled.

The filing does not say how much Conoco (COP.N) believes it is still owed. A Reuters analysis based on figures included in the court filing, the trustee's determination of Conoco's claim, and the amounts the trustee has returned to most other customers shows the figure is around $35 million.

The same analysis shows bankruptcy trustee James Giddens believes he has overpaid Conoco by about $58 million.

The difference lies in the way Conoco and Giddens view $205 million in letters of credit that Conoco and its Canadian unit had lodged with MF Global to back energy trades.

Giddens has returned the letters to Conoco, counting their full face value toward fulfilment of Conoco's claim, but did not return any of the other collateral -- amounting to about $92 million -- in the accounts whose treatment Conoco is disputing.

In Friday's objection, Conoco called such an approach a "miscalculation". It argued that the trustee should have distributed payments based on the amount in the accounts above and beyond the face value of the letters of credit.

There is no indication in the filing that the trustee has sought the return of funds from Conoco. But an agreement covering part of the disputed claim, included as an exhibit to the filing, spells out the trustee's view that Conoco has received more than its fair share so far.

A Conoco spokesman declined to comment, citing ongoing litigation. A spokesman for Giddens declined to comment on the $93.5 million difference of opinion, but said the trustee would respond to Conoco's objection by the August deadline.

"This effort is just one more example of how the trustee is working to expand the estates available for all customers in a fair and equitable manner," said Kent Jarrell, Giddens' spokesman.

MF Global filed for bankruptcy on October 31, after investors and customers became rattled over the firm's roughly $7 billion bet on European sovereign debt and downgrades by credit rating agencies, resulting in a liquidity crunch.

Before its collapse, MF Global had improperly dipped into client funds for its own purposes, leaving customer accounts with a $1.6 billion shortfall, Giddens has said.

Most customers have received, or are soon to receive, distributions totalling 80 percent of their funds. Those who traded on foreign exchanges are set to receive the first 5 percent of their money back in coming weeks.

The trustee should have applied those percentages only to the amounts in Conoco's accounts, excluding letters of credit, Conoco argued.

The trustee never had any right to draw on the letters of credit, Conoco argued in its objection, and therefore should not have included them when calculating the payments to Conoco.

That reasoning suggests the trustee should have distributed about $32.6 million to Conoco from accounts for U.S. exchange trading, and about $2.5 million for accounts using non-U.S. exchanges.

Conoco, among MF Global's largest ex-clients, is one of five former MF Global customers disputing the treatment of letters of credit held by MF Global, Giddens' spokesman said, adding that the trustee is negotiating with all parties in an effort to find a resolution.

The more success the trustee has in recovering the $1.6 billion in missing customer funds, the less the dispute with Conoco and other former customers matters. That is because with more assets available, the trustee will distribute more to all customers, including those with which he has disputes.

But the trustee's efforts to recover funds look likely to take years. Giddens is suing MF Global's British unit for the return of about $640 million in a case not set for trial until next April.

Meanwhile, at least one former MF Global customer with a letter of credit has agreed to Giddens' treatment of such letters: CME Group (CME.O), whose GFX unit had a $15 million letter of credit at MF Global when the brokerage collapsed.

As in Conoco's case, CME's letter of credit was never drawn, and the trustee simply returned it to the account holder.

In return, CME paid the trustee $3 million, bringing the distribution from its account in line with the 80 percent that other account holders have, or will soon have, received.

(Editing by Alden Bentley and Dale Hudson)

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